Telecom fined $500,000 for misleading over Go Large plan

Monday, December 7, 2009

Telecom New Zealand Limited has pleaded guilty to 17 charges of breaching the Fair Trading Act over claims made in 2006 when promoting Xtra’s Go Large broadband plan. Telecom has been fined $500,000 in the Auckland District Court today.

From August to November 2006 Telecom and Xtra undertook an extensive nationwide advertising campaign to promote the Go Large broadband plan and made a number of representations, including ‘“Xtra Broadband is about to be unleashed!”, “unlimited data usage and all the internet you can handle” and “maximum speed internet”.

In December 2006 the Commission launched an investigation following complaints from Xtra customers who found that the internet speed was constrained, in some cases to dial-up speed. Some customers also found that they experienced slower speeds on their new Go Large plan than on their previous plans.

The overall impression of the campaign was that the Go Large plan was unique in that it would offer unconstrained faster speeds and no data caps. However further details available in the fine print of advertising and on Telecom’s website gave the disclaimer ‘as fast as a user’s line will allow’ and outlined the possibility of constraints which included a ‘traffic management policy’ for use during peak times and for those using peer-to-peer applications, such as downloading music and movies.

The Commission established that a change made in early December 2006 to how the Go Large plan was administered meant that the traffic management policy applied at all times and across all applications, not just to peer-to-peer traffic. This meant that in some cases customers were not experiencing unconstrained speeds.

“There is increasing choice in the broadband market and it is important that all relevant information is disclosed to consumers so that they can make informed decisions,” said Graham Gill, Commerce Commission Fair Trading Manager, Auckland .

“Businesses invest time and money in marketing campaigns to attract new customers. To avoid the risk of breaching the Fair Trading Act business should ensure that their goods and services can live up to any marketing hype – in this case Telecom clearly failed to do so,” said Mr Gill. “It can be costly for businesses in terms of potential fines, refunds and the loss of trust from customers if they do not take the time to check that marketing claims are accurate”

“Businesses also need to make sure that any terms and conditions, such as a traffic management policy, do not alter the overall impression given by an advertising campaign” said Mr Gill.

“Telecom has co-operated fully with the Commission’s investigation and has voluntarily paid around $8.4 million in compensation to approximately 97,000 affected customers. Telecom will pay a further $44,000 in reparation to 1,700 eligible Go Large customers. Telecom stopped offering the Go Large plan to new customers in February 2007,” said Mr Gill.